The Hindu Business Line : Case for a global wage floor

The forces of globalisation have contributed to sharpening economic inequalities. The drive to compete is driving down workers’ wages to a level where they can no longer purchase the goods produced by them. While sweatshops have been on the rise in the developing world, joblessness caused by technology is also on the increase.

There has got to be a limit to how much wages can be lowered. That limit would have been breached when there is a generalised crisis of demand and a rise in socio-economic discontent. An internationally determined floor wage makes eminent sense in this developing scenario.

RISING INEQUALITIES

The concentration of wealth is increasing in emerging economies, be it Brazil, India or Russia. If unchecked, Brazil will be controlled by six families, President Lula said. The control of the mafia in Russia is legendary. A study (by a group of economists for the Emerging Markets Forum, a Washington-based group co-chaired by Michel Camdessus, former head of IMF, Haruhiko Kuroda, President, ADB, and Fidel V. Ramos, former President of the Philippines) found that by 2008 India had 50 dollar billionaires who together controlled wealth equivalent to 20 per cent of gross domestic product and, reportedly 80 per cent of stock market capitalisation.

Meanwhile, India is faced with violence and hostility from a variety of marginalised, but volatile groups, from within and outside the country. Mr Gurudas Dasgupta, General Secretary of All India Trade Union Congress and a member of Parliament, warned that if industrial conflict escalates as it did in October in the Gurgaon-Manesar belt, there could be an armed revolution and if that happens he (and his party!) may have to support it.

RACE TO THE BOTTOM

Where are we headed? By the beginning of the 21st century, the garment industry had earned notoriety for being the hotbed for sweatshops throughout the world. Therefore, the $6 hourly wages of workers in the US were the same as the daily wages in the Philippines. Several American players decided to shift base to Makati in Manila to cut labour cost by eight times. Then Bali in Indonesia offered $2 as daily wages. By shifting to Indonesia they could further cut labour cost to one-third of one-eighth. Through illegal migrant workers from Chittagong in Bangladesh they learnt that the wage could be brought down to $1 a day, saving labour cost by a further half.

Diehard optimists would like to argue that you must have faith and hope which serve as the tonic for hard work. But low long can a whole population live by faith and hope, amidst this race to the bottom?

In October 2009, the Asean heads of state were deliberating on a region-wide minimum wage because some of them felt it was imperative to beat the competition from countries such as Bangladesh whose minimum wage was apparently half that in their region. This is fine, but only takes care of part of the problem.

RISING JOBLESSNESS

Low wages and joblessness are like two sides of the same coin. Four years ago, Fortune International applauded Henry Ford’s decision in the previous century to raise the minimum wages of his workers.

His purpose was to see that the workers would also be able to purchase the cars they were building. This made the four-wheelers a product not just for the classes, but also the masses; eventually the industry would boom and both shareholders and workers would flourish.

But a century later, the logic of competition and global market seems to have changed for the worse. If the industrial revolution replaced the animal with the tractor, the information revolution has replaced men and women with computers and robots.

If the trend continues, it is predicted that 3-5 per cent of world’s population would be adequate to produce basic wage goods for the humanity. If over 90 per cent of the world is without work and, consequently, a source of livelihood, markets cannot grow; instead they shrink. It does not help to say that the drive to minimise labour costs and pursue relentless efficiencies is part of the logic of globalisation. With the rich countries hit by recession and unemployment, the outcry against globalisation has increased.

The sentiment of the day is ‘Be American and buy American’, that British jobs are for the British and French jobs are for the French. There is an interest in rescuing troubled enterprises if they close shop abroad and expand in domestic markets. While Doha talks remain deadlocked, there is a rush towards regional trade pacts.

What do these trends tell us? With free trade losing favour, it is no longer necessary to continue with the obsession to reduce wage costs.

All the more reason, then, to have wages that can ensure a decent livelihood and boost the economy through domestic demand.

(The author is Director, International Management Institute, New Delhi. )

More Stories on : Human Resources | Economy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Of ethics and regulation

Pitfalls in transition to new legislation

Look beyond MSP

Power dynamics in Pakistan

Case for a global wage floor

A remedy not apt for the disease

Zero-till can add to the till

Who should bell the cat?

Plan now